Social Welfare

As Russia makes the transition from a command economy to a partial
free-market system, the provision of an effective social safety net for
its citizens assumes increasing urgency. A 1994 World Bank report
described the current social-protection system as inappropriate for the
market-oriented economy toward which Russia supposedly was striving.
Among the major shortcomings noted in the report were the continued
major role played by enterprises as suppliers of welfare services, as
they had been in the Soviet period; the absence of any coverage for
large groups of people and the inadequate level of benefits in some
regions; a growing disparity between a shrinking wage base and the
demands placed on the system; and the failure to target the neediest
recipients. As the economic transition of the 1990s forces more of
Russia's citizens into poverty, the state has tried to maintain the
comprehensive Soviet system with severely constrained resources.

The system's inefficiency is exacerbated by its fragmentation. As in
the Soviet period, allowances and benefits are administered and financed
by diverse agencies, including four extrabudgetary funds, several
ministries, and the lower levels of government. The Ministry of Social
Protection is the primary federal agency handling welfare programs.
However, that ministry focuses almost exclusively on the needs of people
who are retired or disabled; other vulnerable groups receive much less
attention. The four extrabudgetary funds that provide cash and in-kind
social welfare benefits at the federal level are the Social Insurance
Fund, the Pension Fund, the Employment Fund, and the Fund for Social
Support.

Social security and welfare programs provide modest support for the
most vulnerable segments of Russia's population: elderly pensioners,
veterans, infants and children, expectant mothers, families with more
than one child, invalids, and people with disabilities. These programs
are inadequate, however, and a growing proportion of Russia's population
lives on the threshold of poverty. Inflation has a particularly
deleterious effect on households that rely on social subsidies. Women
traditionally have outnumbered men in such households.

The Fund for Social Support supplements a variety of in-kind social
assistance programs in Russia. It is financed through the Ministry of
Social Protection and supplements social welfare programs at the
subnational level. The federal government has transferred most
responsibility for social welfare, health, and education programs to
subnational organs but has failed to ensure their access to adequate
revenue. The total allocation of transfers from the federal budget to
localities amounted to less than 2 percent of Russia's gross domestic
product (GDP--see Glossary) in 1992. Thus, the quantity and quality of
social services at the local level--including the provision of food
vouchers and cash payments to cover specific items such as heating
bills--are far from certain as time passes. Under these conditions,
local jurisdictions have come to rely increasingly on extrabudgetary
sources, the instability of which makes long-term planning difficult.

Pensions

Pensions are the largest expenditure of the social safety program.
The Pension Fund accounts for 83 percent of Russia's extrabudgetary
allocations. At the end of 1994, about 36 million citizens, or 24
percent of the country's population, were receiving pensions, an
increase of about 5 percent in the first three post-Soviet years. Two
broad categories of pensions are paid in Russia: labor pensions, which
are disbursed on the basis of a worker's payroll contributions, and
social pensions, which are paid to individuals who have worked for less
than the five years needed to qualify for a labor pension. All Russian
citizens who have worked for twenty years are entitled to at least a
minimum pension. In 1994 about 75 percent of all pensioners received
labor pensions. The Pension Fund also finances some child allowances and
other entitlements.

The Pension Fund is administered by the Ministry of Social Protection
and financed by a 29 percent payroll tax and by transfers from the state
budget. Between 1991 and 1993, the real income of pensioners was cut in
half as prices rose rapidly and pension indexation failed to keep pace.
Inflation also severely eroded the value of the life savings of
retirees, and a disproportionate number of pensioners were victimized by
financial scams. A 1994 law requires quarterly indexation of pensions,
but the law was not observed consistently in its first year, and in
mid-1995 the average pension fell below the subsistence minimum for
pensioners. Beginning in 1994, the government's failure to pay pensions
on time led to large rallies in several cities. In August 1994, an
estimated 10 million pensioners did not receive their checks on time,
and pension arrears mounted in the two years that followed. By mid-1996
the payment backlog was estimated at US$3 billion. The present system
includes an important provision that has kept many pensioners above the
poverty line: it allows workers to draw pensions while continuing to
work. In 1995 as many as 27 percent of Russian pensioners continued to
work after retiring from their primary job.

Russian and Western experts agree that the pension system requires
comprehensive reform--although its rate of payment compliance by
enterprises is substantially better than that of the State Taxation
Service. The most pressing needs are an effective system of indexation
of pensions to purchasing power, an insurance mechanism, individualized
contributions, higher retirement ages, and the closing of loopholes that
allow early retirement. In 1995 the Ministry of Social Protection began
work on a reform that would establish a three-tier pension system
including a basic pension, a work-related pension in proportion to years
of service, and an optional private pension program. In 1995 Prime
Minister Viktor Chernomyrdin admitted that the state budget lacked the
money to continue indexing pensions according to living costs. In
November 1995, a decree by President Yeltsin, On Additional Measures to
Strengthen Payments Discipline for Settling Accounts with the Pension
Fund, set stricter reporting standards for payments to the fund by
organizations and citizens, in an effort to preclude nonpayment. In the
midst of his campaign to be reelected president, Yeltsin then approved
two laws increasing minimum pension levels in three stages, by 5, 10,
and 15 percent, between November 1995 and January 1996.

Women are entitled to retire when they reach age fifty-five, and men
when they reach age sixty. Nevertheless, financial hardship leads many
women to remain in the labor force past retirement age, even while
continuing to receive pensions, in order to prevent a drop in their
families' standard of living. In 1991 women constituted an estimated 72
percent of pensioners. The disproportion between the genders stems from
women's earlier permissible retirement age and their greater longevity.
Aside from pensions, women receive other retirement privileges. Mothers
of five or more children are entitled to a pension at age fifty.
"Mother Heroines"--women with ten or more children--receive an
allowance equal in sum to the pension, and the time they spent on child
care leave counts toward the minimum twenty years of work required for
labor pensions. For these reasons, many women retire before age
fifty-five, while most men wait until they reach sixty-two. (Many job
categories routinely allow retirement for both sexes before the standard
ages.)

Worker Protection and Benefits

Legislation has established numerous protective devices at the
enterprise level to provide a social safety net that is particularly
attuned to the needs of women of childbearing age. Thus, family policy
and employment policy are inextricably linked. In addition to basic
allowances for all workers, special allowances exist for children of
military personnel, children with unmarried, divorced, or widowed
mothers, and children who are disabled. Women who have an employment
contract are entitled to paid maternity leave from seventy days prior to
giving birth until seventy days afterward. Maternity leave benefits are
based on the minimum wage rather than on a woman's current wage,
however.

Russia also provides a maternity grant, which is a onetime payment
totaling three times the minimum wage or 45 percent of the minimum wage
in the case of mothers who have worked less than one year. In order to
receive a maternity allowance (or sickness benefits), a woman must have
an employment contract. The maternity allowance amounts to 100 percent
of the mother's salary, regardless of her length of employment.

Maternity allowances in Russia are followed by a monthly child
allowance of 80 percent of the minimum wage in the case of children up
to eighteen months old. This allowance may be supplemented by a
child-care allowance, set at 35 percent of the minimum wage, to
compensate for earnings lost in the course of caring for children in
this age bracket. The latter allowance is paid to mothers over the age
of eighteen who have been in the labor force at least one year. An
additional compensatory child-care allowance, equivalent to 35 percent
of the minimum wage, is available to mothers or other caretakers of
children under the age of three.

Russia also has an extended child allowance of 45 percent of the
minimum wage (60 percent for children of military personnel, children
living with a guardian or in an orphanage, and children with AIDS) to
assist families with the care of children between the ages of eighteen
months and six years. Single mothers and those who receive no child
support from the father of their child may obtain an additional 45
percent of the minimum wage up to their child's sixth birthday; this
figure is then increased to 50 percent and remains effective until the
child is sixteen. In May 1992, special cost-of-living compensations were
introduced to cover the increased expense of meeting children's basic
needs. These compensations ranged from 30 percent of the minimum wage in
the case of children less than six years old to 40 percent in the case
of those ages thirteen to sixteen.

Among other benefits provided by enterprises to their workers are
access to special shops that sell subsidized milk for families with low
incomes and small children and an allowance to children for the purchase
of a school uniform when they start school and again at the age of
thirteen. Other regulations focus more specifically on families with
small children. These include protective legislation prohibiting the
dismissal of pregnant women or women with children under the age of
three, banning night work and overtime for mothers of small children,
stipulating workload concessions to pregnant women and mothers of young
children, and providing flextime, part-time work, home-based employment,
nursing intervals, and additional paid and unpaid leave to mothers to
care for sick children. Many workplaces also permit informal leave
arrange-ments for the purpose of food shopping.

A significant portion of Russian workers have entitlements to
housing, child care, and paid vacations, regardless of their rank within
an enterprise. Housing entitlements involve either outright provision of
a low-rent apartment (most apartment rents are very low) or various
forms of cash or in-kind assistance. Moreover, occupants obtain an
implicit ownership right extending beyond their term of employment. They
may also have the legal title of the apartment transferred to their own
names without paying any purchase price (see Housing, this ch.).

Besides housing allowances, most large and medium-sized enterprises
provide on-site medical facilities or they contract for outside health
care facilities for their employees. The medical care provided through
the auspices of enterprises is free and often is of much higher quality
than the care available in government-run facilities (see The Health
System, this ch.). Finally, enterprises provide their employees with
goods ranging from foodstuffs to consumer durables. The enterprises
procure these items through direct purchase, barter, or from their own
farms, and make them available at below-market prices.

The Social Insurance Fund is the administrative mechanism for
payments to workers of birth, maternity, and sickness allowances, and
child allowances for children between the ages of six and sixteen. The
fund is managed by the largest union organization in Russia, the
Federation of Independent Trade Unions of Russia (Federatsiya
nezavisimykh profsoyuzov Rossii--FNPR) and serves as the repository of
enterprise contributions consisting of 5.4 percent of the total payroll
(see Social Organizations, this ch.). Nominally an independent
institution since its establishment in 1991, the Social Insurance Fund
is in fact responsible to the FNPR.

In 1993 an overhaul of the fund's administrative structure began as a
result of enterprises' low levels of compliance with contribution
requirements, charges of serious abuse by trade union officials, and the
government's desire to promote democratic accountability. Since 1993 the
management system has been in flux, and the quality of administration
varies considerably throughout the country. Most worker contributions to
the fund are retained by the enterprise for distribution. About one-half
of the money goes to sick pay and one-fifth to subsidize treatment at
sanatoriums. Family support includes birth and maternal allowances
intended to replace lost wages, but child allowances do not address
poverty directly because payments are not in proportion to household
income.

Russia also has an overall system of family benefits. These can be
grouped into three broad categories: those payable to all families with
children, regardless of income or other qualifying conditions; those
payable to working mothers; and those payable to disadvantaged families.

The communist system, for all its economic and moral deformities,
provided virtually universal employment, so that every able-bodied
citizen had an opportunity to earn income and thus social security. In
postcommunist Russia, the phenomenon of unemployment is openly
acknowledged and growing (see Unemployment, ch. 6). At the end of 1995,
some 8.2 million people were registered as unemployed, indicating a far
higher actual number. Three years earlier, about 5 million were
registered. The "new poor," in the parlance of the World Bank,
put a considerable strain on the resources available in Russia for
social welfare.

Administered by the Ministry of Labor, the Employment Fund, which is
financed by a 2 percent payroll tax from all enterprises, disburses
compensation to jobless people. The level of compensation, already low
in 1995, was expected to drop further if unemployment rose. As part of
its assistance package to Russia, the World Bank is providing a
computerized system that will help the country register claimants for
unemployment and pay adequate benefits.

The Ministry of Labor's subsistence minimum is based on the cost of
nineteen staple items considered sufficient to ensure survival, plus an
estimated minimum cost for utilities, transportation, and other
necessities. The calculation varies according to age-group and region;
trade unions use other formulas that usually expand the number of people
identified as living below the poverty line. In early 1996, the State
Duma considered a law that would make the Ministry of Labor's figure the
legal basis for establishing minimum wages, pensions, and other levels
of social support. Barring such legislation, the subsistence minimum has
no legal status.

The Homeless

The urban homeless are a category of the socially disadvantaged that
received no official recognition in the Soviet era. Because Soviet law
banned beggars and vagrants, the homeless (meaning anyone who lost his
or her place of residence for any reason) were imprisoned or expelled
from the cities. When the ban ended in the early 1990s, thousands of
homeless people, mostly men, appeared in Russia's cities; the majority
had migrated to urban areas seeking work or were refugees from the armed
conflicts that erupted in the Caucasus and Central Asia when the Soviet
Union dissolved.

In 1995 Moscow authorities estimated that city's homeless population
at 30,000, but Western experts put the figure as high as 300,000. An
estimated 300 homeless people died in Moscow in the first half of the
winter of 1995-96, and on-site medical personnel reported widespread
disease. At that point, Moscow had one shelter, with a capacity of
twenty-four, and other Russian cities offered no sanitation or temporary
residence centers of any sort. In the mid-1990s, the government of mayor
Yuriy Luzhkov followed the Soviet pattern of forcibly removing vagrants
from the city, especially at times when large numbers of Western
visitors were expected. Police routinely harass and beat vagrants found
on the streets. The Soviet propiska system of residency
permits, which granted housing and employment to individuals only in the
place where they were officially registered, has been found
unconstitutional several times by Russia's Constitutional Court.
However, many local authorities, including those in Russia's largest
European cities, continue to require Soviet-era documentation; in 1995
Moscow assessed a fee of 35 million rubles (about US$7,000) for
registration as a permanent resident of the city, and several other
cities adopted similar measures. In the face of such restrictions, many
homeless individuals are unable to change their status.

Through the first half of the 1990s, no specific agency of the
Russian government has borne responsibility for aiding the homeless; the
Federal Migration Service, a badly underfunded and understaffed agency
created in 1992, has not been able to carry out its legal responsibility
to locate housing and employment for internal and external migrants (see
Migration, ch. 3). A number of Western humanitarian organizations, such
as the Salvation Army and Doctors Without Borders, are the main source
of assistance. In late 1995, the many deaths of homeless people prompted
the Moscow government to announce plans to build ten new shelters and to
ease the procedure for obtaining residency permits.

Private charities in Russia have suffered from an absence of
government support and a general lack of social acceptance. In 1995, for
example, the soup kitchen of the Christian Mercy Society in Moscow,
which fed 400 poor people daily, had to pay city officials to stay open,
and the organization was unable to obtain a designated space in which to
operate. In fact, Russian law gives no status whatever to private
charities, so such organizations must fend for themselves in helping the
increasingly large number of urban poor. Russian society generally
distrusts charities, partly because no such institutions existed either
in tsarist times (royalty and the nobility provided whatever assistance
went to the needy) or in the Soviet era, and partly because society has
become fragmented by the difficult economic conditions of the 1990s.

According to Western experts, a comprehensive system of social
protection is an urgent need of the Russian government, both for
humanitarian reasons and as a prerequisite to financial stabilization
and economic restructuring. The quality of future Russian society also
will depend on reversing a steep downward trend in the quality of
education and health care that has eroded the ability of Russians to
improve their economic standing and to feel the sense of basic security
that the Soviet system provided to some degree. Under Russia's
conditions of drastic social and economic change, such forms of support
are especially missed in the mid-1990s.